Bloomberg News

Record Offshore Oil Drilling Returns Dockwise to Profit

April 16, 2012

The Aban VIII offshore jack-up drilling rig is being transported by the Dockwise Talisman, a heavy-load ship owned by Dockwise Ltd. Source: Dockwise via Bloomberg

The Aban VIII offshore jack-up drilling rig is being transported by the Dockwise Talisman, a heavy-load ship owned by Dockwise Ltd. Source: Dockwise via Bloomberg

Energy producers are deploying the most offshore rigs ever to meet record oil and gas demand, boosting charters for the ships that move them and returning Dockwise Ltd. (DOCK) and Fairstar (FAIR) Heavy Transport NV to profit.

There are about 675 so-called semi-submersible or jack-up rigs operating, with another 130 scheduled to be built, Oslo- based RS Platou Markets AS estimates. That compares with 97 heavy-load ships and three more on order, according to IHS Fairplay data compiled by Bloomberg. Shares of Dockwise, which says it’s the largest owner of the vessels, will rise 18 percent in the next year, the average of six analyst estimates shows.

Energy producers are moving further offshore to find new reserves after global oil demand expanded 17 percent in the past decade, International Energy Agency data show. Transocean Ltd. (RIG:US), the world’s largest offshore-rig operator, can drill in waters 2.3 miles deep, according to its website. Rising earnings for vessels moving the equipment contrast with capacity gluts and unprofitable rates across most other types of shipping, from oil tankers and iron-ore ships to container vessels.

“Land-based oil production has already peaked and near- shore oil is about to peak, meaning there will be big pressure on the development of offshore oil,” said Andre Mulder, an analyst at Kepler Capital Markets in Amsterdam whose share recommendations returned 18 percent in the past two years. “Offshore platforms are becoming larger and larger, and a lot of these elements will have to be shipped to oil fields hundreds of miles from the coast.”

Amsterdam Trading

Dockwise (DOCKW), based in Breda, Netherlands, will report net income of $34.6 million this year, compared with a loss of $33.5 million in 2011, according to the mean of seven analyst estimates compiled by Bloomberg. Shares of the company rose 12 percent to 13.80 euros ($18) in Amsterdam trading this year and will reach 16.25 euros within 12 months, the predictions show.

Global daily oil demand will advance about 0.9 percent to 89.9 million barrels this year, according to the IEA. Natural- gas consumption will reach an all-time high of 3.565 trillion cubic meters (125.9 trillion cubic feet) in 2015, 16 percent more than in 2009, it estimates.

The 180-meter-long (590-foot) heavy-load ships range from converted oil tankers to purpose-built vessels, some with sections of their hulls removed. They submerge partially to move underneath their cargoes and then refloat once in position. A journey to Angola in West Africa from the Gulf of Mexico takes about 25 days at 10 knots, according to e-ships.net, a website that calculates voyage durations.

Chemical Carriers

Fairstar will make a record $14.3 million this year and $40.4 million in 2013, compared with a loss of $14.4 million in 2011, the mean of three estimates shows. The Rotterdam-based company declined 10 percent to 7.65 kroner ($1.32) in Oslo trading this year and will advance to 13 kroner in the next 12 months, according to the forecasts.

The two companies’ performances compare with a 17 percent gain in the Lloyd’s List-Bloomberg Top 50 Shipping Index Value of the 50 largest companies operating everything from oil tankers to container and chemical carriers. The MSCI All-Country World Index (MXWD) of equities rose 7.6 percent and Treasuries lost 0.6 percent, a Bank of America Corp. index shows.

Macondo Well

An explosion at BP Plc’s Macondo well in the Gulf of Mexico in April 2010 caused the biggest offshore oil spill in U.S. history. The London-based company agreed last month to pay at least $7.8 billion to settle private plaintiffs’ claims related to economic loss, property damage and personal injuries.

Drilling may slow should oil prices slump because energy companies are spending more to maintain or expand output. Total expenditure by producers more than tripled in the past decade while oil and gas supply gained 24 percent, data compiled by Bloomberg show. Spending on exploration and production fell 15 percent in 2009 as New York-traded oil plunged 38 percent in terms of the full-year average price.

The IEA cut its estimate for growth in global crude demand this year by 20,000 barrels a day in a report on April 12. The market is better supplied for the first time since 2009 and stockpiles may have increased by more than 1 million barrels last quarter, the Paris-based group said.

Global economic growth will slow to 3.3 percent this year, compared with 3.8 percent in 2011, the International Monetary Fund estimates. China, the world’s biggest energy consumer, reported an 8.1 percent expansion in first-quarter gross domestic product on April 13, the smallest gain since mid-2009.

Global benchmark

That may be eclipsed by accelerating growth in the U.S., the largest oil importer. The country shipped in 94 percent more crude than China in 2010, according to BP. The U.S. economy will speed up this quarter and next, according to the median of 87 economist estimates compiled by Bloomberg.

West Texas Intermediate, a global benchmark grade of crude, will average $103 a barrel this year and $111 in 2013, according to the median of 37 analyst estimates compiled by Bloomberg. That compares with an average of $65.44 over the past decade. Oil climbed 3.5 percent to $102.30 this year in New York.

Rising earnings for heavy transport vessels contrast with other types of shipping, where owners are dealing with capacity gluts. The Baltic Dry Index, a gauge of costs to haul coal and iron ore, fell 44 percent this year. Rates for very large crude carriers, each able to hold 2 million barrels of oil, dropped for two consecutive years, according to Clarkson Plc, the world’s biggest shipbroker.

Pontoon Structures

About 90 percent of global trade moves by sea, the Round Table of International Shipping Associations says.

As well as oil rigs and their components, heavy-load carriers transport cranes for unloading containers, mining equipment and yachts. Jack-up rigs have support legs that can be lowered to the ocean floor independently of each other, while semi-submersibles are supported on pontoon-like structures under the sea, according to data on the website of Schlumberger Ltd. (SLB:US), the largest oilfield-services provider.

Dockwise says its fleet of 19 vessels makes it the biggest operator. Carrying equipment for the oil and gas industry generates about 70 percent of revenue, said Fons van Lith, the company’s investor relations manager. He declined to comment further before the release of first-quarter earnings next month.

Fairstar has two converted barges, with two more vessels being built. Company officials were unavailable for comment. Other owners include state-controlled China Cosco Holdings Co. (1919), Seoul-based STX Pan Ocean Co. and NYK-Hinode Line Ltd., a unit of Tokyo-based Nippon Yusen K.K.

“Producers of oil are going farther and farther into the water,” said Alan Vandenberghe, an analyst at Petercam SA in Brussels who recommends buying shares of Dockwise. “They need larger and more complex platforms, and this trend also necessitates larger and more complex transportation services.”

To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net


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Companies Mentioned

  • RIG
    (Transocean Ltd)
    • $18.26 USD
    • 0.05
    • 0.27%
  • SLB
    (Schlumberger Ltd)
    • $84.23 USD
    • 1.35
    • 1.6%
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